Chipping Away at the Tax Base

In a quest for even more affordable housing in San Jose, the City Council voted 10-1 to amend the North San Jose Area Development Policy. I voted no.

San Jose, known for its propensity to approve 99 percent of proposed housing developments, continues to go down the same road. North San Jose is a Redevelopment Agency (RDA) zone, and any housing built in a RDA zone historically must allocate 20 percent of the units for affordable housing. However, the “Palmer Case” changed this so rental housing developments cannot be mandated to set aside affordable units. But housing for sale still has the 20 percent affordable requirement, if a city has an inclusionary housing policy like San Jose.

So, of course, the only thing being built now is rental housing, because it doesn’t have to put aside 20 percent of the units. However, the city of San Jose policy incorporates an affordable housing policy by allocating total housing units by market rate and affordable for different phases of North San Jose development. Now that all of the market rate units have been allocated, this leaves only unused allocation for affordable units. The allocation for affordable units exists because they require millions of dollars in subsidy from the city of San Jose housing department to build. This well is a bit dry now due to the potential elimination of RDA.

Tuesday’s proposal is to enter into a development agreement for additional housing developments, which will be entitled if the developer (wink-wink) allocates 20 percent of the units for affordable AND pays money into a fund to help finance other 100 percent affordable housing projects in North San Jose.

As a result, not only do you get more housing, but you also get more of it by not paying the same taxes and fees as market-rate housing. How do we build a tax base to pay for police and libraries if we allow exemption from taxes? How do we pay back RDA bonds with tax increment if an affordable housing development is not taxable and, therefore, creates no tax increment? How do we pay to pave roads if there is an exemption for paying road paving fees? Do you feel that a future general tax increase will already be allocated to pay for exemptions?

School districts also lose out, as more than 50 percent of every property tax dollar goes to K-12 school districts compared to approximately 10 percent for cities. So, you have more students from new housing yet no new property tax revenue to pay for instruction.

I think a better idea would be waiting until the California Supreme Court renders its decision on RDA in January. If the courts kills RDA, then there is no more 20 percent affordable requirement. The other option is to strike the affordable component from the North San Jose Development Policy, so San Jose can get the maximum amount of property tax, park fees and road paving fees.

Alas, the heavy heart of San Jose makes it difficult to think about the bottom line.